I developed and ran a successful business marketing and administering health insurance for twenty-five years. After I sold that business to a large insurance company, I worked under contract to the company for several years. Then I was asked to re-engineer its health division. The owners, hoping to eliminate the health division by private sale or public offering of stock, wanted more profits and a much larger volume of business, all within two years.

Having worked for the company, I knew a good deal about both the changes needed and what might block them. Re-engineering that company's health division would have been trouble on any schedule, but trying to do it in under two years meant at least double trouble.

The Plan
To re-engineer is to re-organize for a specific purpose. Re-engineering can be desirable for many reasons, including making better use of technology, treating the environment better, or increasing efficiency. Re-engineering the health division was part of a larger business strategy; it was undertaken to help get the division's owner out of health insurance. Re-engineering was not the only way to do that, of course. Among the alternatives was to sell the "book of business" alone (without any transfer of personnel, offices, or other assets). But all the alternatives seemed likely to return a smaller profit. A buyer would pay most for an efficient organization with good long-term prospects. So, ultimately, the purpose of the re-engineering was to make the division as profitable as possible within two years.

Re-engineering means radical change. Most of us, to one degree or another, don't like such change. But not all change is the same. Some changes are more painful than others. What is as critical as the changes themselves is how they are made, the means to the end. Good changes made the wrong way may not be worth the pain.

The first step in re-engineering is to evaluate the organization for strengths and weaknesses. Evaluation of the health division included product, sales, and service. The evaluation was both complex and full of uncertainties. Private health insurance may disappear over the next few years, or merely change in ways hard to predict. Many major companies are, or at least are considering, leaving the market. Others may come in.

Process is key to re-engineering. Eliminating redundant or unnecessary tasks can add substantially to profit. The crucial question is not whether a particular process is efficient but how it contributes (efficiently) to long-term profit. Computerization and standardization can eliminate tasks in a large-volume process. But just as important as such technical improvements is "selling" those improvements to the employees. Employees must see the necessity, "buy in", and then actively support them. An employee who has bought in can be an effective "Change Agent"-one who will help carry through the recommended changes.

Other employees accept the word of a Change Agent more readily than that of an outsider. Overlooking the power of knowledgeable employees to help change-or defeat it-can be disastrous.

Doing It
Re-engineering the health division required closing half of its regional sales offices immediately and transferring their sales and service activities to the remainder. Most of the offices closed had minimal sales. Some did not even have sales people! We kept firings to a minimum, primarily by re-training most of those displaced.

We also centralized marketing. We designed and distributed new marketing materials through direct-mail, telemarketing, and target advertising. We changed the process of accepting applications for insurance. We wrote a new underwriting manual and enforced it. No special favors were permitted.

Within a few months, we achieved both standardization of the application process and timely delivery of policy issuance. Customer service improved dramatically, for claims as wells as for sales. New business was fifteen percent more profitable than before. Despite our tighter underwriting rules, sales were increasing.

Such changes within what had been a stagnating bureaucracy were both welcomed and suspect. Many employees had survived several earlier waves of cutbacks, wage-freezes, and executive re-shuffles. These "survivors" were fearful. They told my Change Agents, "You are being way too visible for your first year here. The way to survive is to lay low, make no waves, and never be responsible for a decision." The division needed re-engineering in part because other re-organizations had left its personnel feeling helpless.

About six months after we began, the re-organization was complete and the dust was beginning to settle. The employees generally understood the logic behind the changes and could see why the changes were good for the company. They were accepting the new methods.

Aftermath
Sales were, however, not increasing quite as fast as the company's president would have liked. He was already negotiating with a buyer for the division. He was sure that he could get a better price if sales were better. He therefore asked me to "open the gates", to accept what I felt were substandard risks in order to increase (short-term) revenue. Since (for a time) we would use the same low loss ratio for the substandard risk as for our standard risk, accepting substandard risk would make my long-term projections of profit higher. I refused.

The president nonetheless pushed ahead with his plan for quick sale of the division. Because of financial reporting requirements, he could not make a public offering. Quick sale meant selling to another company. Soon a large insurance company bought the division, merged it with its own health division, and re-organized the resulting entity to form one of the largest health insurance companies in the United States.

I was not among those asked to stay on for that re-organization; I was not even consulted. Soon those who had worked closely with me were leaving, explaining their departure as a response to manipulation, coercion, exploitation, and outright lies. Employees had, they said, been told in a mass meeting how valuable they were to the organization, that they were an integral part of the process. Minutes after the meeting, managers were asked how soon they could shut down operations. The same employees who were "integral to the process" were to be let go as quickly as possible. Some employees left later meetings to throw up in the restroom. Others developed hives or insomnia. Sales plummeted. The new company was soon accepting more and more substandard business in order to maintain revenue.

Eventually, the company was sold again and reorganized again. While most companies experience the earthquake of acquisition once or twice in a lifetime, the company my health division joined went through four in three years.

The company is now sicker than ever, probably terminally so. There is no focus within the company. Training has halted. Most employees with any self-respect left long ago. Those remaining have no incentive to do a good job, no sense of integrity, no trust in their leaders, no assurance that either they or their leaders will be there tomorrow. Since the project they work on today may be useless tomorrow, they are only there to survive. Many have done things to survive that they normally would not. Even their language has changed. Like civilians in a war zone, they now talk of "waiting to get shot", "ducking under the desk", and "diving for cover". Watching one's back and trusting no one has become the rule. Everybody will lose in the long run, especially the customer.

Post Mortem
The difference between my re-engineering and what followed is hard to overstate. It is like the difference between, on the one hand, a surgeon's scalpel followed by physical therapy and, on the other, butchery by chainsaw. Extremely profitable subdivisions, such as the one I had helped to sell them, fell away as employees quit or were fired. I have never seen such waste or carnage in all my years in business, so little consideration for anyone or anything.